Look abroad to avoid risk, investors advised

TISCO BANK advises stock investors to look abroad as the domestic investment environment is full of risk from the political uncertainty.

Tisco sees North Asia – Greater China and South Korea – as favourable destinations this year as the global economic recovery will boost exports from this region. Japan is also on Tisco’s radar because of its economic recovery and the possibility of the continuation of Prime Minister Shinzo Abe’s stimulus policy, known as Abenomics.

Kampon Adireksombat, senior economist of the Tisco Economic Strategy Unit, told a forum sponsored by Tisco Bank and Krungthep Turakij newspaper yesterday that Thailand still had room to grow in the future but because of the political situation, which has dampened domestic consumption, investment, production and tourist arrivals, the country’s investment environment is not attractive right now.

Tisco’s baseline forecast for growth in gross domestic product is 2.5 per cent this year, with the worst-case scenario at 2 per cent. If the political situation is resolved soon, the economy could grow by 3 per cent thanks to exports, which have shown signs of improving from the first month of the year – 2-per-cent growth in February as opposed to a drop in January.

Exports are the main driver of the economy this year because of the clear economic recovery in the United States and Japan, the country’s main export destinations, and the increase in trade to neighbouring countries, especially the CLMV countries of Cambodia, Laos, Myanmar and Vietnam, where most Thai products have dominated the local markets.

For example, 95 per cent of the cement in Cambodia is shipped in from Thailand.

Thailand’s exports to CLMV have increased from 5 per cent (US$6 billion-$7 billion) in 2007 to 8 per cent (almost $20 billion, or Bt650 billion) in 2013.

“Tisco saw a contraction in economic growth for the first quarter of this year but it should be able to pick up by the second half,” Kampon said.

“I do not see a recession this year, since the situation is not as bad as during the United States’ sub-prime crisis in 2009 and the major flooding in 2011, and even then there was no recession.”

Tisco believes that since the domestic market has slowed down and the global economy has recovered through the rise of advanced economies – the United States, the European Union and Japan – the momentum for investment and cash flow is beginning to swing back to developed countries after emerging markets flourished after the sub-prime crisis from 2008-13.

Recent research by the International Monetary Fund predicts that global GDP will grow by 3.7 per cent this year and 3.9 per cent next year, which is higher than the average of 3.4 per cent in the past 20 years. Yunyong Thaicharoen, chief strategist at the Bank of Thailand, said that for the past four or five years the central bank had been encouraging investors to venture abroad through reduced regulations and requirements because that can spread out and reduce the risk of internal uncertainty.

“This is a matter of structure. In the past, Thailand’s assets were clustered within the country, so if there was a spread of investment opportunities, it would be beneficial for the sustainability of the country’s economy in the future,” he said.

The economic recovery is most apparent in the US, since most of its economic indicators including domestic consumption, investment and exports are positive. Other signs that show that the US economy is picking up are the Federal Reserve’s continuing with tapering of its quantitative-easing policy and the rise in prices of housing and other real estate.

Japan

As for growth in Japan, Sucharit Koontanakulvong, president of the Technology Promotion Association (Thailand-Japan), said Abenomics had increased consumer confidence because rising interest rates and the weakening yen due to the stimulus package had also given a lift to Japan’s exports.

The increase in Japan’s domestic consumption, investment, exports and tourism due to Abenomics will continue to drive Japan’s GDP towards its growth target of 4 per cent.

The launch of nuclear power plants this summer will lower the risk from importing energy, cut production costs and balance out the risk of the weaker yen, he said.

Komsorn Prakobphol, senior investment strategist at the Tisco Economic Strategy Unit, said there were clear signs of economic recovery in advanced economies, but their price-to-earnings ratios (P/Es) were already high – the US is at 15-16 times – so investors should look for countries that will benefit from the growth of these advanced economies and invest there instead.

Since the P/E of North Asia is still low at 9-10 times and most of their exports will benefit from the recovery of advanced economies, it is time for Thai investors to venture into this region. South Korea is targeting export growth at 5 per cent and Taiwan at 7 per cent.

“Exports in North Asia have grown considerably and much more clearly than Thailand because of its larger dependency on exports in recent years. The recovery in advanced economies means that economic growth this year will be concentrated in this region,” he said.

Kampon said the market had positive views on the recovery in developed countries including the US, Japan and the non-core economies in Europe.

In Tisco’s view, investors should consider adjusting their investment portfolios in the second half of this year in preparation for the interest-rate hike in the US expected in the first half of next year.

The Fed might even increase the policy rate before the market expects a rise.